Levine on Wall Street: Croque-Monsieurs and Ennui

"My attitude is, 'We'll show ya,'" Mr. Gross said during the interview at Pimco's headquarters, while wearing an unknotted blue tie he says was a present from Mr. El-Erian.

What is the benefit of wearing an unknotted tie? I feel like you rarely see other major financial figures doing this. There's a story here. Otherwise this article has the sort of Pimco press leaks that have become standard these days. Remember the croque-monsieur guy?
Is this a surprise?

In mid-May, during a meeting of about 20 Pimco executives at the firm's investment committee, Mr. Gross halted Jeremie Banet, a French-born executive vice president and portfolio manager, while he was sharing his views.

"I never understand what you're saying," Mr. Gross said, according to people in the room. "Ever."

A day after the exchange, Mr. Banet announced his resignation and said he planned to operate a food truck selling croque-monsieur sandwiches in Los Angeles.

How does Pimco get the narrative back on track? "Tell people to stop leaking" is not working. "Be really nice and hope that gets back to the press" probably misunderstands how news works. I think you're left with "turn in really good performances, because then no one cares how interpersonally weird things are."

Everything is boring.

Here is a story about how there's no trading and markets are boring. "When you go a day or two and don't have a trade on the tape, it's frustrating," says an equity trader, and imagine him saying that to an equity trading algorithm. "I get worried if I go a millisecond without a trade," the algorithm would beep back. "Lazy human!" But salesmen gotta sell:

A few weeks ago, Mr. Nichols said, he passed a young equity salesman in the hallway. The salesman, who got his start in Wall Street after the crisis, was shaking his head over how slow the market had turned.

"You go through lulls," he said. "If you're going through this for the first time, you have no context."

Mr. Nichols said he encouraged the trader to press ahead with calls to clients, take care of administrative tasks or take a research analyst out to lunch.

"There's always something to call about."

Now this might be true, but it's too easy to say without empirical examination. There's always a sales manager saying "there's always something to call about." But one day there'll be nothing to call about. Pity the junior buggy-whip salesman whose boss kept telling him, just get out there, make calls, you'll close a deal one day.

And how's Cynk doing?

At least one equity market maker attributes Cynk's price rise to a short squeeze, and is angry at the Securities and Exchange Commission for not halting it sooner (related). One possible piece of investing advice is, don't do any strategy that requires the SEC's cooperation to work (related). And here is a depressing passage:

Nathan Michaud, a day trader and one-time stock promoter who runs Investorslive.com, said he didn't see any signs that Cynk was being promoted. Articles and blog posts pointing out its valuation actually drove the price higher as traders tried to ride the surge, he said.

"The publicity given to this stock after it jumped up from 10 cents to $4 was the cause of this short squeeze," he said.

All press is good press, even if the press says only "this company is a pure fraud, don't buy it." Meanwhile another alleged chief executive officer of Cynk denies any connection to Cynk, or its alleged $4 billion market cap. At this point surely someone will come forward and say "oh yeah I own Cynk"? Like, sure, there's the risk of jail, but there's also an unclaimed $4 billion. (Not really.)

Sifma has some market structure ideas.

The Securities Industry and Financial Markets Association thinks that maker-taker fees should be reduced (to 5 cents per 100 shares or less, from the current cap of 30) or eliminated, that Regulation NMS should not require brokers to connect to venues that don't add substantial liquidity, that consolidated data feeds should be better, that brokers should do a better job of reporting their order routing, that dark pools should publish their methods online, that kill switches should be standardized between exchanges, and that the SEC should think deep thoughts about things like order types and excessive message traffic. A lot of this stuff seems to be almost universally popular -- basically everyone thinks that dark pools should publish their protocols, and reducing the maker-taker cap is almost as uncontroversial -- which raises questions like, one, is the SEC going to act quickly to take steps that everyone agrees are a good idea? And, two, if everyone agrees that they're a good idea, will they have much benefit?

In this Letter, we have shown that bank holding companies have large exposures to other banks and corporations in the market for over-the-counter derivatives. However, hedge funds and banks generally post collateral that is concentrated in very liquid and safe assets. In particular, bank counterparties seem to primarily use cash as collateral. Corporations post a much more diversified collateral pool, but the value of their posted collateral, as shown in the table, is roughly 75% less than that of banks. Contrary to common belief, the new data also show that banks' trading exposure with hedge funds not only maintain, on average, more collateral than the value of the exposure, but they also hold a large percentage of their collateral in the form of cash.

CalPERS corruption.

The former chief executive of CalPERS -- "America's largest public pension" -- pled guilty on Friday to corruption charges. Basically he got shoeboxes full of cash in exchange for sending CalPERS business to the clients of an investment consultant. You're not supposed to do that! Really if anyone ever hands you a shoebox full of cash, reevaluate your life choices.

Auditor independence.

Ernst & Young audited some companies while also doing some lobbying work for them. That's not allowed. The SEC fined it $4 million and said mean things:

"Auditor independence is critical to the integrity of the financial reporting process," said Scott W. Friestad, associate director in the S.E.C.'s division of enforcement. "When an auditor acts as an advocate for its audit client, that independence is compromised.

But the SEC's order "did not indicate that any action had been taken to review the audits" or that "any members of the audit teams were aware of the independence violations." So actually substantive independence wasn't compromised at all. The audits were fine, as far as we know. It just looks a little bad. But it's important to keep this sort of thing analytically distinct from, you know, shoeboxes full of cash.

LightSquared reached a deal with Charlie Ergen.

The deal, which was negotiated by LightSquared's special committee and not its sort-of owner Phil Falcone, "would give Mr. Ergen a $1 billion allowed claim in the bankruptcy case, and calls for him to invest $300 million in new money into the wireless venture." Now it is Phil Falcone's turn to be hopping mad -- a "stunning reversal to us," says his lawyer -- because this war will never end.

Matt Levine is a Bloomberg View columnist writing about Wall Street and the financial world. He is a former investment banker, mergers and acquisitions lawyer, and high school Latin teacher.
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